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In December, a rare stainless-steel cushion-shaped diver's wristwatch made circa 1954 by Panerai for the Egyptian navy was sold at a Christie's auction in New York for a record $326,500. The Egiziano Piccolo had a presale estimate of $80,000 to $120,000, and featured luminous hands, inlaid Arabic and baton numerals, and a case and movement signed by Rolex. For collectors of this rising Italian brand, it represented a turning point—a validation of sorts—for a still relatively little-known company that has been around since the mid-19th century.

"Until then, Panerai never had a piece that sold at that price," recalls Geoffrey N. Hess, who started collecting Panerai watches nine years ago. "It marked a standard and drove up the price of all vintage collections."

Panerai was founded in 1860 when Giovanni Panerai opened a watchmaker's shop and school in Florence. In the early 20th century, Panerai was commissioned by the Italian navy to make high-tech instruments, including barometers, depth gauges, underwater pressure-compensation torches, and wrist compasses. Thereafter, it operated under military secrecy, largely unknown to the public.

Its first foray in wristwatches came in the mid-1930s, when it was commissioned by the Italian navy to make a special luminous underwater model for its elite commandos.

According to many, this watch, called the Radiomir, was the first professional underwater model in the history of watchmaking. It was able to withstand extreme and highly risky conditions, unlike other watches at the time that were simply water-resistant. A barrel-shaped screw-locking crown, covered with a 12-sided base that was screwed on with a soft metal seal, kept the water out.

The $326,500 watch made circa 1954 for the Egyptian navy, center; and recent models: the Radiomir 1940, left, and the Luminor Regatta, right, with Panerai's trademark bridge arcing over the watch's crown.
Courtesy of Panerai

The company continued to exclusively make watches for military purposes for the next 57 years, with a customer base that expanded to include the Egyptian and German navies. Its innovations included a black dial that enabled luminous hands and numerals to be legible in the depths of the sea, a thick water-resistant stainless-steel case, and extralong straps so that the watches could be worn over several layers of clothing, including diving suits made of rubber.

"The men who wore these watches were not just soldiers," says Aurel Bacs, international head of Christie's Watch Department. "These men were the real special agents and James Bonds of their time. They were in charge of sabotage, and their missions were truly exceptional and dangerous."

Panerai remains a mysterious and coveted name today, says Bacs, because none of its military watches were sold to the public. Even more remarkably, throughout that nearly six-decade-long period, the company created no more than 300 wristwatches in total, which explains the rarity of finding one and the record-price-setting piece sold by Christie's in late 2012.

"Many show serious signs of wear, which was due to these highly dangerous missions," says Bacs, who has sold only 15 vintage Panerai watches at auction throughout his career, compared with approximately 5,000 Rolexes and 5,000 by Patek Philippe from the same period. "And isn't it exciting to hold a 70-year-old instrument in your hands and know that it really has stories to tell? It is a piece of living history."

Panerai's production remained largely a military secret until 1993, when the company released its first commercial collection—three limited-edition models inspired by what commandos wore during World War II. Sylvester Stallone helped put them on the map after discovering Panerai during a trip to Florence. The actor requested a Luminor watch to wear while shooting underwater scenes, and then provided input for the design of a limited-edition series bearing his name.

These Panerai watches, known as Slytech, were produced in the hundreds and have his signature engraved on the base plates. Christie's is auctioning a Slytech this June in New York. Estimate: $40,000 to $60,000.

The Italian company's fortunes changed when luxury impresario Johann Rupert saw a Panerai and immediately realized its potential. In 1997, Vendôme Group (then a spinoff of the Rupert family's Richemont Group, but now wholly owned by it) acquired the Italian brand, adding Panerai to its pearl string of brands that include Cartier, Piaget, IWC, and Jaeger-LeCoultre. A year after the purchase, Panerai was launched in the international market.

"When the group bought Panerai, the only people who really understood the history of the company were either Italian watch collectors or guys who were really into the Second World War," says Rafael Alvarez, president of Officine Panerai North America.

Panerai was one of the earliest companies to introduce oversize wristwatches, and now makes distinctively large watches in a range of sizes from 40 mm (1.6 inches) to 47 mm. But that's not all. Panerai's retro-looking timepieces are also distinguished by their shape and simple dials—not that much different from the company's earliest watches designed in the 1930s. More than that, it is the metal guard—a bridge with a lockdown lever that arcs over the crown used to wind a watch—that has become Panerai's instantly recognizable trademark.

"How many brands have an identifying element that is a functional part of the watch?" observes collector Hess, who is also president of Ivanka Trump Fine Jewelry in New York City. Bacs puts the brand's allure more succinctly: "Panerai is unique because they have not copied anyone, and they do not resemble anyone."

Panerai's pocketwatch tourbillon is made out of modern ceramics
Courtesy of Panerai

The watchmaker's chief executive officer, Angelo Bonati, tells Penta that history, technology, the sea, and design are the most important pillars to be found in each of Panerai's watches. He claims what all luxury-watch bosses are known to claim about their brands: "Innovative materials, movements, and cases are constantly developed, and always with respect to Panerai's historic heritage."

But in this case he's not wrong. Plexiglas crystal rather than a sapphire crystal is used in some of Panerai's vintage-inspired pieces, as it was during the earliest days of diving watches. Some recent designs also feature hour markers (dots, lines, arrows, or numerals) covered with a thin layer of Super-LumiNova (an illuminating nonradioactive, nontoxic paint). For the vintage-inspired watches, the color of this luminous paint is ecru (light grayish-yellowish brown), resembling the patina of vintage Panerai. "These elements bring you back in time," enthuses Hess.

Panerai usually releases models as limited editions, from 50 to a 1,000 pieces each, and the smaller editions often sell out immediately. The watches range in price from $5,000 to $260,000 for a customized watch, although most models are found in the $10,000 to $20,000 range. Bezels around the crystal come in black ceramic, brushed bronze, polished steel, titanium, and 18-carat polished red gold.

Recent technological advancements, jazzing up the retro look, include an automatic movement with a 10-day power reserve; a hand-wound, single button, eight-day chronograph, which most of us know as a stopwatch; and a hand-wound tourbillon, the rotating cage that counters gravity and its distortions. The company will soon be making all its movements in-house at a state-of-the-art factory located in Neuchâtel, Switzerland.

The watchmaker's compulsive collectors are called Paneristi and can be found hanging out and chatting on paneristi.com. The firm works hard, naturalmente, at stroking collectors and maintaining the brand's connection to the sea.

It sponsors, for example, Panerai Classic Yachts Challenge, a 600-yacht regatta for vintage and classic yachts. For yachtsmen, Panerai has built the Luminor 1950 3 Days Chrono Flyback Regatta Titanio-47mm. The watch offers a countdown function specifically created for yacht-racing starts; it also measures the time elapsed since the start of the race, and costs $18,800.

It's a watch worth considering if you have a taste for strutting America's harbor fronts this summer in the style of an Italian naval officer.